One of the most optimistic ways to deal with a debt trap is to assume your income is going to go up, despite lower investment in new opprotunities. This may not be realistic, but it sure sounds good, lol. Not surprisingly, many of the most optimistic governments budget proposals assume our economies will soon be growing at remarkable rates. It's true that robust growth can mean more jobs, more economic activity and most importantly for the government more tax reciepts. However, this growth is "inevitable" approach to budgeting is a lot like spending the winnings from your lottery ticket before you even know it's a winner; and the odds are that it's not, lol.
To-date growth in the U.S economy has been nowhere near recent projections; and to make matters worse , an aging U.S. population will soon be paying less in taxes just when the government needs to payout more in retirement benefits. Japan is already feeling this demographic squeeze, as is much of the EU.
Showing posts with label Journalism.. Show all posts
Showing posts with label Journalism.. Show all posts
Tuesday, June 8, 2010
Tuesday, May 25, 2010
#1 Debt--->GDP
When you want to borrow money these days most lenders will look at your income and expenses before making a decision. The higher your precentage of debt to income, the risker you are as a borrower. Similary, the ratio of a nation's debt to its gross domestic product is a very strong financial indicator.
The European Union set its debt limit at 60 percent of GDP, but Greece has already hit 125 percent and economists are predicting an EU average of around 80 percent by 2012. The European Central Bank's chief economist predicts U.K. debt will hit 88 percent of GDP next year, with the U.S rising to 100 percent and Japan at 200 percent.
Some U.S. poloticians have tried to calm our fears by saying the debt-to-GDP ratio was much higher at the end of WWII. They fail to mention that 90 percent of that debt was earmarked for military spending, which dropped dramatically after the war. Back then, federal entitlement programs, interest expenses and discretionary spending amounted to just 10 percent of GDP.
Today, more than half of U.S. debt is tied to a rising tide of entitlements such as Social Security and Medicare. Cutting all the federal government's discretionary spending would save only 15 percent.
To solve this problem, most governments prefer to raise taxes, not spend less. But if more money is siphoned off in taxes and government borrowing less, less is left to invest in opprotunities such as job creation in America.
The European Union set its debt limit at 60 percent of GDP, but Greece has already hit 125 percent and economists are predicting an EU average of around 80 percent by 2012. The European Central Bank's chief economist predicts U.K. debt will hit 88 percent of GDP next year, with the U.S rising to 100 percent and Japan at 200 percent.
Some U.S. poloticians have tried to calm our fears by saying the debt-to-GDP ratio was much higher at the end of WWII. They fail to mention that 90 percent of that debt was earmarked for military spending, which dropped dramatically after the war. Back then, federal entitlement programs, interest expenses and discretionary spending amounted to just 10 percent of GDP.
Today, more than half of U.S. debt is tied to a rising tide of entitlements such as Social Security and Medicare. Cutting all the federal government's discretionary spending would save only 15 percent.
To solve this problem, most governments prefer to raise taxes, not spend less. But if more money is siphoned off in taxes and government borrowing less, less is left to invest in opprotunities such as job creation in America.
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